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SMCI Gains 45.1% YTD: Can Strong AI Focus Drive the Stock Beyond?
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Super Micro Computer, Inc. (SMCI - Free Report) has been on a remarkable run, with its shares climbing 45.1% in the year-to-date period. This performance has significantly outpaced the industry’s return of 29.8%, the Zacks Computer and Technology sector's 15.5% gain and the S&P 500's 15.7% rally.
Compared to its peers, SMCI stock has left incumbents like NetApp (NTAP - Free Report) and Pure Storage (PSTG - Free Report) behind, with these stocks returning 32.5% and 31.7%, respectively, in the same period.
Such rapid gains naturally lead investors to wonder: whether to buy SMCI, or is it time to lock in profits?
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Super Micro Computer is at the forefront of the current AI revolution. It has been riding on its technology and product leadership in the AI infrastructure market, especially with generative AI training and AI inferencing. Its diversified AI portfolio and strong AI integrations into its storage systems are a plus.
Moreover, its diversified business model, which encompasses Graphics Processing Units (GPU), AI, core computing, storage, 5G, edge computing and Internet of Things solutions, remains a major positive.
Strong AI Drive Boosts Prospects of SMCI Stock
Super Micro Computer is experiencing solid traction across top-tier data centers, emerging cloud service providers, enterprise/channel and edge/IoT/telecom customers.
The company’s strength in its high-quality, optimized Direct Liquid Cooling (DLC) solutions for high-end applications is aiding it in capitalizing on the current AI boom, which is driving the demand for liquid cooling technology.
Super Micro Computer remains optimistic about its robust pipeline of new products, as well as existing products. The company’s accelerated innovation of DLC products, a large design win pipeline and a strong backlog position it for solid growth in fiscal 2025.
Strong momentum across the company’s H100-based systems and AI inferencing systems is another positive.
Its offering of Rack-Scale plug-and-play (PnP) solutions powered by the latest DLC liquid cooling technology, which enables customers to achieve the best time-to-deployment, time-to-online and lowest total cost of ownership with their AI applications, remains noteworthy.
The solid adoption of its Rack-Scale PnP Total AI solutions, which are contributing well to its server and storage revenues, is a plus. It expects 5,000 racks capacity per month by the end of this year.
SMCI has also aided the deployment of some of the largest AI SuperClusters in the world.
Super Micro Computer is making strong efforts to scale up its production in order to capitalize on AI prospects further and drive its momentum among cloud service providers.
It has recently added three new manufacturing facilities in Silicon Valley to support the growth of AI and enterprise rack-scale liquid-cooled solutions and capitalize on the rising demand for liquid-cooled data centers.
Additionally, SMCI’s strength in its Datacenter Building Block Solutions (DCBBS) is boosting its presence in the data center market.
With the rapid deployment of large-scale AI infrastructure, datacenters worldwide are facing power shortages and cooling inefficiency challenges. DCBBS addresses these issues by reducing datacenter build time from about 3 years to 2 years for new AI-specific centers.
Strategic Partnerships Drive SMCI’s Growth
Super Micro Computer’s strategic partnerships with NVIDIA (NVDA - Free Report) , Intel and Advanced Micro Devices (AMD - Free Report) are playing a vital role in driving its customer momentum.
SMCI’s robust portfolio of infrastructure solutions for 5G and telecom workloads, on the back of its strong partnership with NVIDIA, remains a major positive. It is also benefiting from strong momentum across the NVIDIA GPU product lines.
Many Super Micro Computer servers are explicitly designed for high-performance NVIDIA GPUs for AI processing, such as the very high-density 4U-8GPU systems, the Intel CPU-based SYS-421GE-TNHR2-LCC, and the AMD CPU-based AS -4125GS-TNHR2-LCC.
To further capitalize on the growing proliferation of AI, Super Micro Computer has deployed NVIDIA HGX H100 SuperCluster solutions to deliver enhanced experience to its customers.
Super Micro Computer also offers several products that support Intel’s Sapphire Rapids data center CPU and AMD’s Genoa data center CPU.
SMCI is now deepening its focus on developing new generative AI and inference-optimized systems based on the next-generation NVIDIA H200, B100, B200, GH200 and GB200 GPUs, as well as Intel’s Gaudi2/3 and Advanced Micro Devices’ MI300X/A GPUs.
Super Micro Computer’s strong AI portfolio, along with strategic partnerships, are expected to benefit its long-term prospects.
For fiscal 2025, the company expects net sales of $26-$30 billion, suggesting year-over-year growth between 74% and 101%. The Zacks Consensus Estimate for the same is pegged at $28.01 billion, indicating year-over-year growth of 87.5%.
SMCI Offers Attractive Valuation
SMCI stock is trading at a discount with a forward 12-month Price/Earnings of 11.87X compared with the industry’s 14.35X and lower than the median of 25.87X, reflecting a good opportunity for the investors.
Image Source: Zacks Investment Research
Shipment Delays: A Risk for SMCI
In the fourth-quarter fiscal 2024, Super Micro Computer suffered from a shortage of some new key components, which delayed shipments that could generate about $800 million in revenues. As a result, the company’s gross margin contracted 580 bps year over year. SMCI’s mounting expenses due to product innovation, marketing and administrative activities led to a contraction of 320 bps in its operating margin.
Super Micro Computer still expects shipments to be constrained due to supply-chain bottlenecks for key new components for advanced platforms, which is a major negative.
The company is not seeing any significant boost in the shipment of Nvidia's Blackwell GPU until March 2025, which is a severe concern.
The company expects gross and operating margins to gradually increase in the current fiscal year, driven by product and customer mix, and manufacturing efficiencies in new DLC AI GPU clusters, and platform introductions. However, the near-term margins are expected to be under pressure due to rising marketing spending and growing investments in manufacturing facilities and research and development.
All these are expected to pose a serious impact on the company’s EPS.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $33.50 per share, suggesting a year-over-year rise of 51.6%. The figure has moved south by 0.2% over the past 30 days.
Image Source: Zacks Investment Research
Conclusion: Hold SMCI Stock for Now
Given the strong fundamentals, cheap valuation and promising long-term growth prospects in the AI infrastructure market, it would be wise for existing shareholders to hold on to their Super Micro Computer shares. The company is well-positioned to continue delivering robust growth, particularly as the demand for AI remains strong.
However, for new investors looking to buy the stock, it might be prudent to wait for a more attractive entry point. The shipment delays, supply-chain challenges, macro headwinds and falling earnings estimates make the near-term prospects of SMCI foggy.
Image: Bigstock
SMCI Gains 45.1% YTD: Can Strong AI Focus Drive the Stock Beyond?
Super Micro Computer, Inc. (SMCI - Free Report) has been on a remarkable run, with its shares climbing 45.1% in the year-to-date period. This performance has significantly outpaced the industry’s return of 29.8%, the Zacks Computer and Technology sector's 15.5% gain and the S&P 500's 15.7% rally.
Compared to its peers, SMCI stock has left incumbents like NetApp (NTAP - Free Report) and Pure Storage (PSTG - Free Report) behind, with these stocks returning 32.5% and 31.7%, respectively, in the same period.
Such rapid gains naturally lead investors to wonder: whether to buy SMCI, or is it time to lock in profits?
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Super Micro Computer is at the forefront of the current AI revolution. It has been riding on its technology and product leadership in the AI infrastructure market, especially with generative AI training and AI inferencing. Its diversified AI portfolio and strong AI integrations into its storage systems are a plus.
Moreover, its diversified business model, which encompasses Graphics Processing Units (GPU), AI, core computing, storage, 5G, edge computing and Internet of Things solutions, remains a major positive.
Strong AI Drive Boosts Prospects of SMCI Stock
Super Micro Computer is experiencing solid traction across top-tier data centers, emerging cloud service providers, enterprise/channel and edge/IoT/telecom customers.
The company’s strength in its high-quality, optimized Direct Liquid Cooling (DLC) solutions for high-end applications is aiding it in capitalizing on the current AI boom, which is driving the demand for liquid cooling technology.
Super Micro Computer remains optimistic about its robust pipeline of new products, as well as existing products. The company’s accelerated innovation of DLC products, a large design win pipeline and a strong backlog position it for solid growth in fiscal 2025.
Strong momentum across the company’s H100-based systems and AI inferencing systems is another positive.
Its offering of Rack-Scale plug-and-play (PnP) solutions powered by the latest DLC liquid cooling technology, which enables customers to achieve the best time-to-deployment, time-to-online and lowest total cost of ownership with their AI applications, remains noteworthy.
The solid adoption of its Rack-Scale PnP Total AI solutions, which are contributing well to its server and storage revenues, is a plus. It expects 5,000 racks capacity per month by the end of this year.
SMCI has also aided the deployment of some of the largest AI SuperClusters in the world.
Super Micro Computer is making strong efforts to scale up its production in order to capitalize on AI prospects further and drive its momentum among cloud service providers.
It has recently added three new manufacturing facilities in Silicon Valley to support the growth of AI and enterprise rack-scale liquid-cooled solutions and capitalize on the rising demand for liquid-cooled data centers.
Additionally, SMCI’s strength in its Datacenter Building Block Solutions (DCBBS) is boosting its presence in the data center market.
With the rapid deployment of large-scale AI infrastructure, datacenters worldwide are facing power shortages and cooling inefficiency challenges. DCBBS addresses these issues by reducing datacenter build time from about 3 years to 2 years for new AI-specific centers.
Strategic Partnerships Drive SMCI’s Growth
Super Micro Computer’s strategic partnerships with NVIDIA (NVDA - Free Report) , Intel and Advanced Micro Devices (AMD - Free Report) are playing a vital role in driving its customer momentum.
SMCI’s robust portfolio of infrastructure solutions for 5G and telecom workloads, on the back of its strong partnership with NVIDIA, remains a major positive. It is also benefiting from strong momentum across the NVIDIA GPU product lines.
Many Super Micro Computer servers are explicitly designed for high-performance NVIDIA GPUs for AI processing, such as the very high-density 4U-8GPU systems, the Intel CPU-based SYS-421GE-TNHR2-LCC, and the AMD CPU-based AS -4125GS-TNHR2-LCC.
To further capitalize on the growing proliferation of AI, Super Micro Computer has deployed NVIDIA HGX H100 SuperCluster solutions to deliver enhanced experience to its customers.
Super Micro Computer also offers several products that support Intel’s Sapphire Rapids data center CPU and AMD’s Genoa data center CPU.
SMCI is now deepening its focus on developing new generative AI and inference-optimized systems based on the next-generation NVIDIA H200, B100, B200, GH200 and GB200 GPUs, as well as Intel’s Gaudi2/3 and Advanced Micro Devices’ MI300X/A GPUs.
Super Micro Computer’s strong AI portfolio, along with strategic partnerships, are expected to benefit its long-term prospects.
For fiscal 2025, the company expects net sales of $26-$30 billion, suggesting year-over-year growth between 74% and 101%. The Zacks Consensus Estimate for the same is pegged at $28.01 billion, indicating year-over-year growth of 87.5%.
SMCI Offers Attractive Valuation
SMCI stock is trading at a discount with a forward 12-month Price/Earnings of 11.87X compared with the industry’s 14.35X and lower than the median of 25.87X, reflecting a good opportunity for the investors.
Image Source: Zacks Investment Research
Shipment Delays: A Risk for SMCI
In the fourth-quarter fiscal 2024, Super Micro Computer suffered from a shortage of some new key components, which delayed shipments that could generate about $800 million in revenues. As a result, the company’s gross margin contracted 580 bps year over year. SMCI’s mounting expenses due to product innovation, marketing and administrative activities led to a contraction of 320 bps in its operating margin.
Super Micro Computer still expects shipments to be constrained due to supply-chain bottlenecks for key new components for advanced platforms, which is a major negative.
The company is not seeing any significant boost in the shipment of Nvidia's Blackwell GPU until March 2025, which is a severe concern.
The company expects gross and operating margins to gradually increase in the current fiscal year, driven by product and customer mix, and manufacturing efficiencies in new DLC AI GPU clusters, and platform introductions. However, the near-term margins are expected to be under pressure due to rising marketing spending and growing investments in manufacturing facilities and research and development.
All these are expected to pose a serious impact on the company’s EPS.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $33.50 per share, suggesting a year-over-year rise of 51.6%. The figure has moved south by 0.2% over the past 30 days.
Image Source: Zacks Investment Research
Conclusion: Hold SMCI Stock for Now
Given the strong fundamentals, cheap valuation and promising long-term growth prospects in the AI infrastructure market, it would be wise for existing shareholders to hold on to their Super Micro Computer shares. The company is well-positioned to continue delivering robust growth, particularly as the demand for AI remains strong.
However, for new investors looking to buy the stock, it might be prudent to wait for a more attractive entry point. The shipment delays, supply-chain challenges, macro headwinds and falling earnings estimates make the near-term prospects of SMCI foggy.
Super Micro Computer currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.